RENT IS DUE! But so are mortgage payments! What can you do to pay your mortgage on your investment properties? What do you do if your tenants can’t pay the rent? How will the COVID-19 quarantine, regulations and provisions effect real estate investors and landlords?
Like most Americans, it took me more than a minute to figure out exactly how exactly the Covid-19 quarantine, restrictions, and governmental provisions would effect employment, business owners, home owners, home renters, and landlords and investors. Let’s be honest — each day it’s a full scramble to pivot with all the new rules and restrictions!
Thankfully, there is some clarity. Here are three things you can do right now to put yourself in a solid financial position when it comes to being a landlord or investment property owner.
ASK YOUR BANK FOR FORBEARANCE
When it comes to mortgage loans, it is best to consider each of your banks as individual entities. Some came into this crisis flush with cash and with plenty of cushion. Others are over-leveraged.
The key is to move fast and to make contact TODAY to ask for forbearance on each individual rental property that you own.
You will need to use the magic phrase “Covid-19 induced financial hardship” — something easy to prove if you are a landlord or small business owner. This can be done by phone calls or secure online messages, but almost all banks and loans should be able to offer you at least a 90 day hold on mortgage payments with no negative effect on your credit.
This applies to most federally backed loans as well as privately held and commercial loans, so make sure to check with your lender today to see what provisions are available for you.
Banks are also not allowed to assess extra fees, penalties or interest during this time-frame — a time-frame that may be extended depending on the length of this crisis. There’s going to be a rush to grab this opportunity to free up your cash — so get first in line!
TALK TO YOUR TENANTS
Don’t let the fear of bad news stop you from reaching out to your tenants and getting a feel for their financial situation. The Cares Act prevents federally backed landlords (single and multi-family) from evictions for any reason (not just COVID-19) for 120 days starting from March 18, 2020.
It is critically important to note that the eviction moratorium lasts 120 days while the mortgage forbearance only lasts 90 days. Not only that, but the eviction process takes an extra 30 days (longer in some states) after the initial notice to vacate.
In other words, now is NOT the time to have a bad relationship with your tenants! Pick up the phone and talk with them and work out a plan, one compassionate human being to another. We are all in this together, and they might be in a better financial position than you think.
FIND ALTERNATE SOURCES OF CASH FLOW
Find out your eligibility for a Paycheck Protection Loan (PPP). A PPP loan will charge interest at no more than 4% and will be administered by the Small Business Administration (SBA). Payment of interest, principal and fees will be deferred for at least six months but not more than 1 year.
This loan does not require collateral or personal guarantees and is subject to forgiveness! The loan is designed to help you keep your employees on payroll, so it is for small businesses with no more than 500 employees (unless the applicable industry has a higher size standard under the SBA rules).
You have to have been in operation on February 15, 2020 and have W-2 employees or 1099-MISC independent contractors. If this fits your small businesses’ description, reach out to your CPA and/or bank ASAP to get started. I know my conversations with my lenders are already underway.
When you talk to your CPA, it is also important to research your eligibility for an Economic Injury Disaster Loan (EID). An EID Loan is a low-interest, fixed-rate loan that can provide up to $2 million in assistance for a borrower. This is a great choice for landlords, as any individual who operates as a sole proprietorship, with or without employees, or as an independent contractor is eligible.
Not only that, but you can request an emergency advance from the SBA of up to $10,000, which does not have to be repaid, even if the loan application is later denied. Advances are to be awarded within 3 days of an application.
A third option is to apply for a Small Business Loan. Cash is king, and if you are a landlord, liquidity is vital. If you are a for-profit business operating in the United States, have invested equity and have exhausted other financing options, you are eligible for a Small Business Loan.
Talk to your local bank — they are eager to lend in this economy and have a variety of loan options available. Again, it is a bank by bank situation, so make sure to check around to see what your best options are.
Finally, if your employment is in a solid position and your tenants are holding strong, it is wise at this time to look into refinancing the HELOC on your personal residence. Interest rates are low, property values are high, and drive-by appraisals and remote closings are available.